How Does ‘Staking’ Affect the Circulating Supply and Tokenomics of a Cryptocurrency?

Staking involves locking up a portion of a cryptocurrency for a period to secure the network and validate transactions, typically in a Proof-of-Stake system. This action removes the staked tokens from the immediate circulating supply, which can reduce selling pressure and increase scarcity, positively impacting the price.

In return, stakers receive rewards, which are new tokens, making the tokenomics inflationary to the extent of the reward rate. Staking creates a trade-off between reduced circulating supply and increased overall supply.